From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry’s 13.9% return has trailed the S&P 500 by 18.8 percentage points.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one resilient healthcare stock at the top of our wish list and two we’re steering clear of.

Two Healthcare Stocks to Sell:

Baxter (BAX)

Market Cap: $12.25 billion

With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE: BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.

Why Do We Pass on BAX?

1. Annual sales declines of 6.2% for the past two years show its products and services struggled to connect with the market during this cycle
2. Weak constant currency growth over the past two years indicates challenges in maintaining its market share
3. Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 3% annually

Baxter’s stock price of $23.88 implies a valuation ratio of 9.2x forward P/E. Check out our free in-depth research report to learn more about why BAX doesn’t pass our bar.

Labcorp (LH)

Market Cap: $23.01 billion

With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE: LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.

Why Do We Think Twice About LH?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 14.3 percentage points
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Labcorp is trading at $276.94 per share, or 16.5x forward P/E. To fully understand why you should be careful with LH, check out our full research report (it’s free for active Edge members).

One Healthcare Stock to Watch:

Vertex Pharmaceuticals (VRTX)

Market Cap: $103.4 billion

Founded in 1989 with a mission to create medicines that treat the underlying causes of disease rather than just symptoms, Vertex Pharmaceuticals (NASDAQ: VRTX) develops and markets transformative medicines for serious diseases, with a focus on cystic fibrosis, sickle cell disease, and pain management.

Why Are We Positive On VRTX?

1. 16.1% annual revenue growth over the last five years surpassed the sector average as its offerings resonated with customers
2. Earnings growth has trumped its peers over the last five years as its EPS has compounded at 15.9% annually
3. Industry-leading 41.8% return on capital demonstrates management’s skill in finding high-return investments

At $404 per share, Vertex Pharmaceuticals trades at 20.6x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .

Stocks We Like Even More

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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